Dive Brief:
- Two major Chinese manufacturers, Tianyuan Garments and Sun Paper Industry, are offshoring their production the U.S., reversing a trend set by American manufacturers in the 1970s, CNN reported last week.
- The manufacturers cite geography and state incentives as reasons for shifting their production sites. The two companies will together create 650 jobs in Arkansas and North Carolina.
- Tianyuan Garments' largest market is North America, and relocation to Arkansas allows the company to set up shop at a one-day truck drive's away from 60% of the U.S. population. The company will also receive a $1 million infrastructure grant, $500,000 in training assistance and a 3.9% annual tax rebate, CNN reports.
Dive Insight:
Like U.S. manufacturers looking to "nearshore" operations in order to cut lead times, Chinese manufacturers are increasingly considering the same tactic improve market penetration in the massive North American market.
The story, eerily similar to manufacturers of old's official reasons for shifting to China, shows the rising importance of geography, trade barriers and business incentives to production site decisions despite rising costs of labor. Establishing production in the U.S. helps secure NAFTA's low barriers to trade and remove shipping from the good-to-market considerations, which helps improve just-in-time manufacturing and reduce fulfillment timelines.
Meanwhile, as the Chinese economy slows and the country's middle class grows, efforts are being made to push into new markets, such as by the re-opening of the old Silk Road or China-led trade agreements.
The U.S. still far outpaces China in offshoring, though, leading to a continued trade imbalance. However, states' combined efforts to draw foreign manufacturers, China's slowing economy, and the growth of just-in-time manufacturing or other trends to reduce lead times are, together, starting to reverse that trend.
